Hostess lives another day to mediate with union

Hostess Brands Inc. and its second largest union agreed on Monday to go into mediation to try to resolve their differences after a bankruptcy court judge concluded that the parties hadn't gone through the critical step. That means the maker of the spongy cake with the mysterious cream in the middle won't go out of business yet.

The news comes after the maker of Ho Ho's, Ding Dongs and Wonder Bread last week moved to liquidate and sell off its assets in bankruptcy court. The company cited a crippling strike started on Nov. 9 by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union that started, which represents about 30 percent of Hostess workers. The move would affect 700 workers in Lenexa and Emporia.

"Many people, myself included, have serious questions as to the logic behind this strike," said Judge Robert Drain, who heard the case in the U.S. Bankruptcy Court in the Southern District of New York in White Plains, N.Y. "Not to have gone through that step leaves a huge question mark in this case."

The mediation talks are expected to begin Tuesday, with the liquidation hearing set to resume on Wednesday. After Monday's hearing, Jeff Freund, an attorney for the bakers union, said any guess as to how the talks will go would be "purely speculative."

In an interview following the hearing, CEO Gregory Rayburn said that there is enormous financial pressure to come to an agreement with the union by the end of the day Tuesday. He noted that it's costing Hostess about $1 million a day in payroll costs alone to keep the company alive.

"We didn't think we had a runway, but the judge just created a 24-hour runway," said Rayburn, who added that even if a contract agreement is reached, it's unclear whether all 33 Hostess plants operate again.

Hostess, weighed down by debt, management turmoil, rising labor costs and the changing tastes of America, decided on Friday that it no longer could make it through a conventional Chapter 11 bankruptcy restructuring. Instead, the company, which is based in Irving, Texas, asked the court for permission to sell assets and go out of business.

Hostess, which is in its second bankruptcy in less than a decade, said that it was saddled with costs related to its unionized workforce. So the company brought on Rayburn as a restructuring expert to renegotiate its contract with labor unions.

Hostess, which had been contributing $100 million a year in pension costs for workers, offered them a new contract that would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits. But the bakery union decided to strike.

By that time, Hostess had reached a contract agreement with its largest union, the International Brotherhood of Teamsters, which urged the bakery union to hold a secret ballot on whether to continue striking. Although many bakery workers decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels.

Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow. The company's announcement on Friday that it would move to liquidate prompted people across the country to rush to stores and stock up on their favorite Hostess treats. Many businesses reported selling out of Twinkies within hours and the spongy yellow cakes turned up for sale online for hundreds of dollars.

Even if Hostess goes out of business, its popular brands will likely find a second life after being snapped up by buyers. The company says several potential buyers have expressed interest in the brands. Although Hostess' sales have been declining in recent years, the company still does about $2.5 billion in business each year. Twinkies along brought in $68 million so far this year.

Instead of complaining about vulture capitalist ruining Hostess, why don't you just get a couple of like minded people together, buy the company and run it the way you think well run companies should be run. Yes, Merrill, I vote for you for CEO.

100 million dollars in pension costs per year.
1 million dollars a day (365 million dollars a year) in payroll costs.

Versus what in management salaries?

Actually, since April, somewhere in the arena of 5 dollars, since the current CEO (the new one, by the way, brought in to save the company, so he can't be blamed for any previous issues) had reduced all management salaries, including his own, to one dollar.

So yeah, pretty much - the company is in trouble because of payroll and pensions. While I'm sure there's plenty of historical blame to go around, the current troubles are because of payroll, pensions and debt. The only thing it can do about any of those things is to go into bankruptcy.

And those employees who are being paid above-market wages were only being asked to take an 8% wage reduction. You know, instead of the 100% wage reduction from liquidation. The pension reduction essentially freezes pensions at this moment - instead of the complete lack of a pension that would come from closing. Then a hike in health care costs - which somehow are still in line with the Obamacare laws that apply to the rest of us non-union schlups.

But wait, look over there, I thought I saw some anonymous rich manager to blame.

But wait, look over there, I thought I saw some anonymous rich manager to blame.

You did.You also saw the venture/vulture capitalists. They loaded the company down with debt during the previous bankruptcies, and failed to use their so-called management expertise to find new markets or products to grow the company out of debt.